Uncertainty Keeping Gold Bullish, MAs Keeping It Supported

The Middle East crisis has mostly helped Oil and Gold whose price has risen to $1,997 by Friday evening, the highest level since late July. Two main factors contributed to this rise: a decline in the value of the US dollar (USD) as a result of Federal Reserve Chair Jerome Powell’s dovish comments, and an increase in demand for safe-haven assets due to the conflict in Gaza.

Concurrently, the US Dollar Index (DXY), which measures the value of the USD relative to a basket of six important currencies, is stabilizing after losing ground recently and is currently trading at 105.85. The increase in US Treasury yields is also notable; the yield on the 10-year Treasury has reached 4.99%, a level not seen since 2007.

On the other hand, risk assets such as stock markets have turned bearish due to growing tensions in the Middle East and rising US Treasury rates after US Federal Reserve Chair Jerome Powell’s comments opening the door for more tightening, global equities markets saw a steep decline over the week. Friday was particularly bearish for S&P500 and the German DAX.

In the short term, Gold is becoming more popular as tensions across the world continue to rise due to the Middle East conflict. When geopolitics took hold, we witnessed a turnaround in the late September XAU/USD pair, which saw a decline to $1,810 as the USD gained significant momentum. As of late, Gold is once again moving above $2,000, having gained almost $180 over the previous two weeks.

FED’s Powell acknowledged the impact of tighter financial conditions, but he did not rule out more tightening given the strength of the economy and strong labor markets. As a result, the US Treasury 10-year yield reached its highest level since mid-2007, while equities fell, with the negative correlation between bonds and equities reaching its greatest point in years in recent weeks. The correlation between bonds and GOLD on the other hand is positive and moving averages are also helping in keeping the price supported, as we can see on the H1 chart above.


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